Global X Clean Water ETF Climbs on Earnings

Demand for clean water is surging as populations around the world expand. The Global X Clean Water ETF climbed by nearly 7% last week, as its top two holdings, Ecolab and Ferguson, delivered positive news to investors.

• AQWA rose last week on back of top holding Ecolab’s strong Q3 results.
• Second-largest holding Ferguson up amid acquisitions and share-repurchase scheme.
• The US is predicted to spend $744bn on water infrastructure in next 10 years.

The Global X Clean Water ETF [AQWA] is up 6.5% in the past week and up 7.5% year-to-date. The rise comes on the back of strong performances from the fund’s two biggest holdings during the past five sessions.

The share price of top holding Ferguson [FERG] has gained 2.3% in the past week and 25.8% year-to-date. On 1 November, the company announced it had bought another 89,800 of its own shares as part of an ongoing $3bn share repurchase scheme.

Second-largest holding Ecolab [ECL] leaped 9.8% and 21.2% over the same periods, after delivering positive third-quarter (Q3) results on 31 October. Earnings per share (EPS) of $1.54 jumped 18% year-over-year, beating by 1.3% the consensus estimate among analysts polled by Zacks.

The AQWA fund offers exposure to companies within the clean water provision market, covering industrial water treatment, purification, storage and water distribution infrastructure, among others.

As of 31 October, 49.8% of the fund’s holdings are directed towards industrials, followed by utilities (37.6%), materials (8.4%), information technology (3%) and consumer discretionary (1.3%).

Optimism from Top Holdings

The largest holding in the Global X Clean Water ETF as of 3 November is waterworks supplier Ferguson, with an 8.24% weighting in the portfolio.

Ferguson last reported earnings at the end of September, posting a year-over-year sales decline of 1.7% for Q4, although its full-year sales increased by 4.1%. The company has been focused on acquisitions, highlighting eight over the year, which generated approximately $780m in revenues. In Q4, these included New York plumbing distributor Bruce Supply, mid-Atlantic waterworks distributor The Kennedy Companies and New England distributor SG Torrice.

However, Ferguson’s projected net sales for full-year 2024 are “broadly flat”. At the Q4 earnings, CEO Kevin Murphy noted a “continued challenging market backdrop” but said Ferguson was well-positioned to “leverage emerging multi-year structural tailwinds such as non-residential megaprojects”. 

AQWA’s second-largest holding is Ecolab, with a 7.95% share of the fund portfolio. Ecolab’s business includes the development of “innovative water technologies” to treat wastewater, recycle and support water reuse, and reduce overall usage.

The Minnesota-based company posted a “very strong” Q3 performance last week, reporting sales of $4bn, up 8% year-over-year. Operating income increased by 17%.

Ecolab anticipates adjusted diluted EPS of $1.48–1.58 for Q4, or growth of 17-24% year-over-year. 

US Water Infrastructure Investment on the Rise

Demand for clean water is rising globally as populations grow and the climate changes. This in turn puts pressure on water infrastructure and supplies. It’s estimated the US will spend $744bn on water infrastructure improvements in the next decade. According to the UN, 10% of the world lives in areas under high or critical water stress.

Fortune Business Insights predicts that the world water and wastewater treatment market will grow from $301.8bn last year to $536.4bn by 2030. 

Meanwhile, the US Environmental Protection Agency’s Bipartisan Infrastructure Law is directing a landmark $50bn to improving national drinking water and wastewater provisions.

For this reason, companies focusing on clean water supplies may see demand for their services increase, all of which could be good news for AQWA’s outlook. However, tough macroeconomic conditions have also weighed on water stocks’ performance.

At TipRanks, a consensus among 12 analysts gives Ferguson stock a ‘moderate buy’ rating, while a consensus among 12 analysts gives Ecolab a ‘hold’ rating.